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Healthy Profits May Deter Cliff Natural Resources (CLF) Breakup Threats

NEW YORK (TheStreet) -- Cliff Natural Resources (CLF - Get Report), the miner facing complications from an activist investor looking to tear the company apart, has posted profitability far above analyst consensus. Better-than-expected results and robust outlook could, at least temporarily, ward off calls to spin off its assets.

By midmorning, shares were up 6.9% to $23.40.

The iron ore and coal miner recorded fourth-quarter net income of $31 million, or 20 cents a share, far better than a loss of $1.6 billion, or $11.36 a share, suffered in the year-ago quarter.

Excluding one-time charges, per-share earnings of $1.22 a share were well above Thomson Reuters consensus of 77 cents a share.

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"Through a company-wide focus to improve our cost profile and financial position, we ended the year with over a billion dollars in cash flow from operations, paid down the entire balance on our revolving credit facility, and achieved $1.5 billion in adjusted EBITDA," said CEO Gary Halverson in a statement.

Revenue for the three months to December was 1.3% lower than a year earlier at $1.5 billion. Sales were lower due to decreased market pricing and sales volumes for metallurgical coal, partially offset by a 10% increase in global seaborne iron ore.

Cliffs, like many in the industry, has been plagued by weakness in the steel industry and soft demand for iron ore in the past few quarters, inciting activist hedge fund Casablanca Capital to push for a breakup of its international business. The firm argued that the company's international assets, such as Canada-based mines Bloom Lake and Wabush, were a drag on its more profitable U.S. operations.

The company said it expects continued growth in China over 2014 to expand at a pace near the official government target rate, driven by fixed asset investment. Also, the company anticipates "accelerating economic growth" in the U.S. to support domestic steel production and the need for steelmaking raw materials such as iron ore.

"Growth in these key markets is anticipated to provide continued demand for Cliffs' products," the company said in a statement.

"Sharper capital allocation that increases shareholder value must drive our decisions," added Halverson. "The first step in this process is significantly cutting our capital spending and idling and or exploring alternatives for underperforming assets in our portfolio."

Halverson, previously Cliffs' chief operating officer, was recently promoted to CEO effective immediately, a role which has been vacant since November. 

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TheStreet Ratings team rates CLIFFS NATURAL RESOURCES INC as a "hold" with a ratings score of C-. The team has this to say about their recommendation:

"We rate CLIFFS NATURAL RESOURCES INC (CLF) a HOLD. The primary factors that have impacted our rating are mixed -- some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its increase in net income, revenue growth and growth in earnings per share. However, as a counter to these strengths, we also find weaknesses including disappointing return on equity, a generally disappointing performance in the stock itself and generally higher debt management risk."

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